Retirement can be a wonderful opportunity to spend time with loved ones, explore new interests, and travel to new destinations. But a comfortable retirement requires advanced planning and a clear sense of your financial needs. To ensure that you have enough for the lifestyle you want, it’s important to consider how your income and savings factor into the equation.
The Challenge of Retiring Comfortably
With the average retirement currently lasting approximately 20 years, balancing financial needs and savings can feel overwhelming. So, how can you be sure that you won’t outlive your income and that you can keep up with inflation? Taking your full financial picture into account is a great start. This will help you build your “income floor” and give you a sense of how much you need to cover your basic expenses.
Once you have a clear understanding of your needs, you can develop a strategy to help you meet them. Ideally, this strategy should also provide you with enough extra income to enjoy your retirement and do the things you want.
Social Security benefits, traditional defined benefit plans, and 401(k) plans can all contribute to your retirement income, and knowing how much you’ll receive from each is key. If you find that you have income gaps, or want to build another reliable income stream, it’s important to consider other options.
Understanding Retirement Annuities
One of the best ways to overcome the challenge of outliving your savings is to make annuities a part of your overall retirement plan. The two main types of annuities are fixed annuities and variable annuities, and each comes with specific benefits.
Fixed Annuities
A fixed annuity can offer a lifetime income that can help to market-proof your savings while allowing for continued growth. After retirement, fixed annuities can provide you with consistent monthly payments that last for the rest of your life, and they can help to offset any unexpected expenses you may incur over the years.
Variable Annuities
If you’re looking for growth along with security, variable annuities can be a good option since they allow you to diversify your savings and invest in multiple asset classes. Once you start your retirement, you’ll be able to convert some, or all, of your savings into lifetime income distributed through monthly payments.
The Benefits Guaranteed Lifetime Income
One of the key benefits of annuities is the peace of mind they offer. Outside of pensions and Social Security benefits, annuities are the only retirement option that can provide an income that's guaranteed to last for as long as you live. This can make navigating a long retirement easier and allow you to pursue your hobbies or even travel to new destinations. It can also help you leave a meaningful legacy for your family.
As life expectancy continues to improve and retirements grow longer, a well-defined financial plan is a key step in a comfortable retirement. Whether you’re just starting to invest or nearing your retirement years, the annuity products offered by TIAA can offer you the choice and security you desire, while helping you plan for the future.
This article originally appeared on Investopedia.
